North Korean Issue Hurts South Korea’s Rating

Moody’s Investors Service, a leading U.S. credit rating agency, said on Wednesday that it would maintain its outlook for Korea’s sovereign rating as “A3 negative” due to North Korea’s nuclear risk lingering on the Korean peninsula.

“As long as uncertainties regarding North Korea’s nuclear program remain, the sovereign rating on South Korea will not be raised,” said Tom Byrne, Moody’s lead analyst on South Korea. “We have decided to maintain Korea’s ratings outlook as negative.”

The rating agency downgraded Korea’s ratings outlook by two notches from “A3 positive” to “A3 negative” on February 11, citing the North Korea nuclear issue.

The sovereign rating of a country with a positive outlook is likely to be upgraded, while a negative outlook means a possibly downgraded sovereign rating. Stable outlook means a rating is unlikely to be revised. “If there is not a high cost burden on South Korea after successful international negotiations, Korea’s rating outlook is likely to become positive,” the analyst said. He expected, however, that even though North Korea would not develop nuclear weapons, it might require massive support or crumble, which in turn would cause a huge financial burden for South Korea.”

Kwang-Hyun Kim kkh@donga.com